1. Book Far in Advance5. Take Advantage of Wave Season (Jan-Mar)8. Avoid Cruising on Holiday Weekends13. Avoid Cruising on New Ships14. Cruise on Refurbished Ships18. Minimize Spending Onboard the Ship

Some comments on these:

We booked far in advance because we wanted a certain cruise and a certain cabin on the ships. But it also helped save money. :)

All of our cruises were in January since it broke up the winter right in the middle. We had been through two months of winter by mid-January and had two months (or so) left.

I did check out Christmas/New Year's cruises once and they were significantly more expensive.

We never went on a new ship, but the ships we were on were refurbished -- so they were "like new".

We hardly spent any money on board. We didn't gamble, don't drink, and didn't get the soda package. We did buy some treats, but only when they were on sale.

May 24, 2017

One’s net worth is simply the number of assets one owns, minus the debts one owes. Folks track net worth in a variety of ways, and have a variety of theories about the best way to do this. Here’s a common example of how a typical American might track his net worth:

Sam has the following assets to his name:

• A Honda Accord worth $20,000• A home worth $300,000• $7000 in cash• $200,000 in retirement savings in a 401(k)• Total assets: $527,000

Sam also has the following debts:

• A car loan of $17,000 on the Honda• A mortgage for $240,000 on his home• $4000 in credit card debts• $30,000 in student loans• Total liabilities: $291,000

Sam’s net worth in this scenario is $236,000.

The financial statement that shows your “net worth” would be the equivalent of a company’s “balance sheet.” In this case, Sam is worth about a quarter of a million dollars and might be feeling pretty good about himself.

So why is this number so important? Net worth boils down to exactly how many dollars an individual has to their name across all of their financial positions. It’s also the number most folks try to increase as much as possible. It gives the individual a clear picture of their financial position across all of their financial accounts and possessions.

Separating Real and False Net Worth

The goal of this book is not to increase one’s net worth, as it is commonly calculated, but instead to help the reader attain early financial freedom. Therefore, we must focus on buying and building real assets, not false ones. Commonly calculated net worth includes things like equity in homes, retirement accounts, and cars. These false assets do not generate income and are actually in some cases liabilities to the owner. They soak up dollars that could otherwise be deployed to buy real assets, or to extend one’s financial runway. A home, for example, comes with a mortgage payment. Far from expediting early financial freedom, the owner is forced to generate more investment income than someone without a large mortgage payment and monthly upkeep expense. The same is true for cars and other luxuries that many people list as assets. Do not focus on increasing net worth as commonly calculated if you desire early financial freedom. Instead, track your real net worth, as comprised of real assets and cash and cash equivalents less debts and obligations. Focus on building wealth that directly works toward your goals, rather than wealth that cannot be harnessed in the near term to produce income or reliable appreciation.

What does one seeking early financial freedom care if they have $200,000 in retirement accounts? If that person is under thirty years old, they may have trouble accessing those funds without penalty for over thirty years! That retirement account is a false asset which doesn’t have any direct impact on day-to-day decision-making, or really even long-term decision-making (if ten or more years is considered long-term). Retirement accounts may only be considered part of this equation if they can be accessed far in advance of retirement age, or are a meaningful part of the current financial decision-making process. While it’s not bad to have the retirement account, it’s not useful to one whose goal is to secure early financial freedom.

If the goal is to become financially free, then we only care about those aspects of net worth that are directly relevant to that goal. Real net worth excludes much of Sam’s net worth in the example previously discussed. That said, it’s certainly useful to remain up to date on your both your real and false assets. You should keep an eye on the value of your retirement accounts, home equity, car, other items, and resources you own that are of material value, just as you should know the value of your real assets and cash. If you aren’t paying constant attention in this game of finance, you will lose. Whether through theft, ticky-tack fees charged by sneaky banks or credit companies, or by making an obvious mistake, those who don’t pay close attention to their assets and to where their money is going will slowly lose in the game of money.

The solution? Track both types of net worth—track your commonly calculated net worth and your real net worth. For example, you might track the former with one software tool and the latter with another.

If you don’t know your net worth (real or commonly calculated) at the moment and are not regularly checking up on it, then this might be one of those tasks that you set about completing immediately. There’s no point in playing the game of finance if you can’t even keep score.

• A car loan of $17,000 on the Honda• A mortgage for $240,000 on his home• $4000 in credit card debts• $30,000 in student loans• Total liabilities: $291,000

Sam’s usable net worth is negative $284,000.

How did this happen? Well, Sam made several key mistakes that far too many middle-class Americans make:

• He bought a financed car.• He bought a luxury home with a huge mortgage.• He got himself a financed degree.• He failed to build any significant wealth outside of a retirement account.

Folks, this is likely what most of America considers a strong financial position, and it’s absurd. A lifetime of “smart” decisions and Sam is in a $284,000 financial hole. Another way of expressing this is to say Sam has $284,000 in debts against his ability to make big life decisions that would disrupt his current income or lifestyle. This is why Sam has no choice but to continue to work his job or one very much like it for decades. He is clearly not on a path toward attaining financial freedom anytime soon.

Notice that while false assets are not included in the calculation of real net worth, debt associated with those assets is. Purchasing a false asset with debt is double trouble. The asset doesn’t assist in the pursuit of early financial freedom, and interest-bearing debt is assumed by the purchaser. Do not purchase false assets with debt if you seek early financial freedom! This is why buying luxuries on credit is such a drag on middle-class America’s finances. Financed cars, boats, trucks, TVs, computers, and the like are a double-whammy as they aren’t assets that serve the goal of financial freedom, and the debts must be counted against their financial position.

So What Should Sam Do?

Do you understand why parts I and II of this book are so important? Make the effort to move through those sections, and build after-tax cash reserves or their equivalents. Use those dollars to purchase real assets that generate income and are likely to appreciate.

Too many people attempt to move toward early financial freedom from a position like Sam’s. Sam is in far worse position than the guy starting from scratch. Sam has to reject choices he’s accepted as a smart, normal, and natural progression of adult life, and completely start over in order to begin building assets in a way that will bring about early financial freedom.

If your position is like Sam’s and you wish to move toward early financial freedom, you’ll have to accept the fact your financial choices to this point in life have resulted in a several hundred thousand dollar hole. You will need to begin to accurately track your finances with a clear understanding of your real net worth, and it might not be pretty. You will need to slowly and steadily begin to climb out of that hole, and accept that you’re at the first step of the financial journey and need to begin saving money—after tax—that can be used today. Otherwise, you will struggle to do anything other than maintain your current position in life.

Sam needs to get serious about building wealth and immediately make some drastically different choices if he wishes to achieve early financial freedom. Sam isn’t going to like any of this advice:

• First, he needs to harness the $60,000 in his home equity by selling his home and purchasing a house hack or far cheaper primary residence.• Second, he needs to sell his car and buy a used one with $3000 to $7000 cash. • Third, he needs to design an efficient lifestyle to begin saving thousands of dollars per month.• Fourth, he needs to start paying down his personal debts (especially the credit card debt) and get them to zero. • Fifth, he needs to stop contributing to his retirement account and instead focus on building real assets with surplus savings—assets that will help him bring about early financial freedom.

If Sam heeds this advice, he will spend the next several years rapidly building real wealth that gives him real options in life. No longer will he be chained to that mortgage, job, and vesting 401(k) interests. Sam will soon have tens of thousands, and not too much later will have hundreds of thousands of dollars in real, tangible assets like stocks and bonds, investment real estate, and a sizable cash position. In a few short years, he could buy back all of his prior luxuries with cash and have the option to walk away from work entirely.

Of course, this is fantasyland.

Sam isn’t going to sell his house and cramp his style. Sam isn’t going to sell his car. Sam isn’t going to cut back on his spending, so that he all of a sudden starts saving thousands of dollars per month outside of his retirement account. Unfortunately, Sam and people like him typically make excuses, not change. Sam will not give up his house, his fancy SUV, or even start packing lunch.

The best we can hope for is to plant a seed in Sam’s mind and to help Sam understand that most of his assets are really liabilities—or at best, are useless, if he wishes to attain early financial freedom. Sam will hopefully keep this in mind over the next few years, and when he gets a raise, won’t correspondingly increase his spending but use that extra money toward paying down debts. After a few more years and a few more raises, Sam will have paid off those debts and begin to start investing outside of his retirement account.

We can hope that Sam will slowly begin making changes in his life that move him toward early financial freedom. When Sam’s kids start school, he might find opportunities to use after-school programs instead of an expensive babysitter. In ten years, when Sam sells his home, he’ll buy a reasonable replacement, instead of the biggest, fanciest one he qualifies for. Slowly but surely, his position will improve, and one day, he will finally have a positive real net worth, and maybe, just maybe, he’ll bring some options back into his life.

Sam! I wish I could save you those decades. I wish I could impress upon you the financial consequences of your decisions in those early years, and the abundance that could be yours if you let go of your biggest “assets” and harnessed the wealth you’ve trapped in them to produce real returns elsewhere.

If only you had avoided those purchases! If only you could have invested in a house hack! If only you could have accumulated some cash so that you could make a big trip, travel the world, or otherwise do the things you really wanted in life! But, in failing to do that, I hope at least, that you begin to build a little wealth outside of your home equity and retirement accounts. I hope you focus your financial strategy around increasing that wealth from now on. And I hope that eventually, slowly but surely, you’re able to buy some freedom back into your life. I hope that you buy yourself the power to decide whether and where to work, and what you do during the best part of your day, during the best part of the week, during the best years of your life.

If you resemble Sam, you’ll likely need to make a number of changes in many important parts of your life to pursue early financial freedom. And, you will need to honestly calculate your own current position and track the changes over time, with a clear understanding of the consequences of your decisions.

May 17, 2017

The single biggest retirement mistake I see is that retirees don’t set aside funds for income during the early years of their retirement. They go directly from accumulating retirement funds to withdrawing them. And that can be a big problem.

I'm not sure this is the single biggest mistake, but it's up there.

I would say the biggest mistake is not saving enough. THEN it's not developing sources of retirement income.

It's true that for most of our lives our investments are in growth mode and invested in things like index funds to grow our assets.

But as we approach retirement we need to look at ways to turn those (hopefully massive) assets into income generators -- at least in part.

These could be supplemented with a part-time job or side business if needed/wanted. Many people would like to continue to work, just do something they enjoy a bit more, and are willing to be paid less for it in retirement.